SanDisk (SNDK), a leading manufacturer of flash memory cards along with Intel (INTC) and Micron (MU), is increasingly benefiting from the growing global mobile phone market, particularly the smartphone market.
Mobile phone memory was an insignificant portion of SanDisk’s business five years ago, but has now grown rapidly to contribute 50% of SanDisk’s revenues in Q1 2010. We estimate Mobile Phone Flash Cards division to constitute 40% of the $44 Trefis price estimate for SanDisk’s stock.
SanDisk, with its MicroSD card series, dominates the mobile memory market which has bifurcated into low capacity cards (1 GB & 2 GB) for low-end mobile phones and high capacity cards (16 BG & 32 GB) for high-end smartphones.
We expect SanDisk’s mobile business to remain the biggest growth area for SanDisk as a result of growing mobile phone demand in emerging markets and growing adoption of smartphones.
1. Strong Demand for Low Capacity Cards In Emerging Markets
SanDisk saw a surge in demand for its low capacity 1 GB and 2 GB MicroSD cards in Q1 of 2010 from emerging markets such as China, India, South America and Africa. This was a result of low cost mobile manufacturers in the emerging markets rapidly upgrading their products by introducing memory slots rather than purely relying on small capacity embedded flash memory used earlier.
We believe the growing demand in emerging markets for mobile phones with memory slots will positively benefit the flash card penetration in mobile phones and, in turn, boost sales for SanDisk’s low capacity MicroSD cards. We estimate that mobile phones sold with memory slots will increase to 50% in 2010, up from 41% in 2009.
2. Increasing Smartphone Adoption Driving Sales of High Capacity Flash Cards
The growing demand for smartphones has created three avenues for SanDisk to increase its memory card sales:
(i) Partnerships with smartphone vendors such as Apple, RIM, Nokia
SanDisk partners with smartphone makers like Apple (AAPL), RIM (RIMM) and Nokia (NOK) that provide high capacity embedded flash memory in their handsets to enhance the end user multimedia experience. In addition, they sell bundled memory cards with their smartphones in order to store a large amount of media content.
Partnership with smartphone manufacturers will be beneficial for SanDisk, with the global smartphone market share in total mobile phones sold is expected to double from 2009 to 2013.
(ii) Partnerships with mobile network operators such as AT&T, Verizon, Sprint
Network carriers like AT&T (T), Verizon (VZ) and Sprint (S) have custom applications and services for their mobile users. SanDisk’s customizable service delivery card (SDC) provides operators a way to deliver some of the latest applications without burdening the network with higher data traffic.
The popularity of SanDisk’s SDC card can be seen from the fact that 9 out of the top 10 mobile network operators use the card, and we expect this trend to continue in the future.
(iii) Aftermarket retail sales opportunity
In addition to the bundled memory cards bought from smartphone makers, consumers also buy extra memory cards through retail channels to meet additional storage requirement over time. This creates another sales opportunity for SanDisk related to mobile phones.
Disclosure: No positions